Anglo Irish Bank Rocked as state moves in

It typified the boom years of Ireland\'s so-called \'Celtic Tiger\' economy, becoming the third largest bank in the Republic as business soared. Now Anglo Irish Bank is being dubbed the new Northern Rock, with the Irish government forced to adopt UK Prime Minister Gordon Brown\'s formula of nationalisation to prevent its collapse into insolvency.

Just over a year ago, Anglo Irish was reporting profits of £1bn and had a stock market value of 13 times that amount. By the time the government took it over, its share price had plummeted and its value was put at £164m.

Neither the government’s £440bn bank guarantee scheme nor its commitment to inject £1.5bn into Anglo Irish in a recapitalisation plan was sufficient to reassure the stock market. Investors remained convinced that the huge sums the bank had loaned to developers at the height of the Irish property boom would never be repaid, and sent the share price into a nosedive.

The tipping point came when it was revealed that over an eight-year period the chairman of Anglo Irish, Sean FitzPatrick – the man credited with making it such a commercial success – had taken £87m in loans from the bank for personal investments.

He had hidden the loans from the balance sheet by moving them to the Irish Nationwide Building Society at the end of each financial year and then back again following the annual audit.

FitzPatrick resigned over the affair while insisting he had done nothing illegal, and was quickly followed out the door by chief executive David Drumm and finance director Willie McAteer.

Next to go was financial regulator Patrick Neary, who announced his retirement when it was established that his office had known about the loans for over a year but that he was never told due to a “communications failure”.

Finance minister Brian Lenihan acknowledged that “the misconduct” of the former chairman, now facing a series of investigations, and some of his staff had done “huge reputational damage to the Irish banking system”, but insisted the bank was not insolvent.

He said the aim was to make a fresh start with a government-appointed board. He also indicated that an assessor would be app-ointed to determine what compensation, “if any” should be paid to shareholders.

Lenihan warned: “It may be that Anglo Irish will be judged to be worthless.”

The minister declined to disclose the amount of bad debts facing Anglo Irish. However, critics of the government move claim it means Irish taxpayers are now effectively bankers, not just to most of the state’s large property investors and speculators but also to some of those involved in huge property deals in the UK and the US, and that such a commitment carries